Uganda: Business in 2014

2013 could not have ended on a worse note for the business community. Indeed, the confusion in South Sudan, one of Uganda's main trading partners in recent years, could not have come at a worse time for traders. It is inevitable therefore that there will be loss of business for many business people who ply that route.

How soon the crisis will be resolved will determine for how long the traders will count their losses. But even after the situation normalizes, it will be long before trade between the two neighbours booms like it has been in recent years. Also, the suffocated market in South Sudan could affect productivity in the manufacturing sector in the short term especially of consumer goods that had found a ready market in the new country.

However, with the coming in force of several regional protocols in 2014, regional trade involving other countries outside the East African region would get a new impetus, which could somewhat offset the effects of the crisis in South Sudan.

Locally, the exchange rate is expected to be largely stable or favourable to the local currency for the better part of 2014 thanks to the large amounts of dollars that are expected to be injected into the oil industry and infrastructure development in the country. This will definitely be good news to local exporters especially to the regional market and overseas particularly of agricultural products.

But with the deadline for the signing of Economic Partnership Agreements (EPAs) imminently due in 2014, a dramatic effect on the volume of trade between Uganda and the European Union could be inevitable.

Financial services:

In 2014, commercial banks will want to quickly forget the last two years, which saw a terrible dip in profitability across the sector. Of course the trend was a carry-over from the economic crisis of 2008-2009, which saw the appetite for loans dwindle leading to a dramatic decline in profitability as well as a spike in nonperforming loans and assets.

All indications however appear to suggest that the situation would tend towards the 'normal' state in 2014. The new high profile foreign direct investment portfolios in the economy could also be a significant boost to the banking industry.

Also, one or two acquisitions could be on the cards. But generally, 2014 is indeed expected to be a good year for banks, which could see the number of bank branches and ATMs continue to rise to record levels. On the insurance front, the industry will experience resurgence thanks to new investment.

The expected changes in the legal framework and increased focus on enforcement and regulation could also see the industry take on an unprecedented spur.

Telecoms:

With the imminent entry of a new telecom operator in the market, the proverbial cat could be thrown into the cage of otherwise settled pigeons. The merger of Airtel and Warid had created a semblance of stability, culminating from the temporary cessation of the call time price wars with MTN that had become the hallmark of the telecom market in the country.

All this could change with the coming in of the new operator whose eye will certainly be fixed on mowing away huge chunks from the existing customer base of the older operators - akin to what happened when Warid joined the fray in the late 2000s when a massive price war ensued.

Airtel and MTN will want to fight off the beguiling smiles of the new operator by making the tariffs more affordable in an effort to retain their customers. If or not however, the new competition will lead to better quality of services is what will remain to be seen.

Real estate:

The slowdown in the real estate industry is expected to ease in 2014. However, Ugandans should expect the price of building materials to be anything but low as it has been for most of 2013. As the demand spikes thanks to the several large-scale infrastructure projects that will see a marked increase in construction activity, the prices of cement, iron bars, steel and other building materials are expected to rise sharply.

While this will affect the rate of growth in the construction of new commercial rental space, it will mean the prevailing surplus in the rental space market will be cleared up. Consequently, a resultant rise in the cost of commercial rental space especially in Kampala city should be expected.

Investment:

A boom is expected in new foreign direct and local investment particularly in agro processing and the oil industry. Following CNOOC, which got its production licence several weeks ago, Tullow will most certainly get its own production licences ahead of Total, which is also expected to get the same later in the year.

The activity in this sector is expected to attract more investors in the industry. All in all, 2014 is expected to be the year when the stage will be set for a decade of tremendous opportunities for the business sector. Happy New Year!

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